Note 9 - Equity

12 Months Ended

Dec. 31, 2023

Notes To Financial Statements

EQUITY

NOTE 9—EQUITY

On June 12, 2023, an amendment to the Company’s amended and restated certificate of incorporation was approved by shareholder vote to reclassify the Company’s existing common stock as shares of Class A common stock and create a separate Class B common stock. We are authorized to issue up to a total of 225,000,000 shares of Class A common stock and 35,000,000 shares of Class B common stock as well as 50,000,000 shares of preferred stock, each having a par value of $0.01 per share.

The initial distribution of Class B common stock occurred on June 21, 2023 via a stock dividend to existing holders of common stock as of May 12, 2023. On the date of initial distribution, each holder of common stock received 0.2 shares of Class B common stock for every one share of existing common stock held on the record date. Similar actions or modifications occurred for holders of outstanding stock-based awards.

The distribution of the Class B common stock provides existing holders of the Company’s common stock with an opportunity to participate directly in the financial performance of the Company’s CORE assets on a stand-alone basis, separate from the Company’s metallurgical coal operations. CORE assets were acquired initially as part of the Company’s acquisition of Ramaco Coal in the second quarter of 2022. The financial performance of CORE assets consists of the following non-cost-bearing revenue streams based on the Company’s current expectations:

● Royalty fees derived from the royalties associated with the Ramaco Coal and Amonate reserves, which we believe approximates 3% of Company-produced coal sales revenue excluding coal sales revenue from Knox Creek,

● Infrastructure fees based on $5.00 per ton of coal processed at our preparation plants and $2.50 per ton of loaded coal at the Company’s rail load-out facilities, and

● Future income derived, if and when realized, from advanced carbon products and rare earth elements initiatives.

The Company expects to pay a dividend equal to 20% of the total fees above; however, any dividend amounts declared and paid are subject to the sole discretion of the Company’s Board of Directors.

In addition, the Board of Directors retains the power to change or add expense allocation policies related to CORE, redefine CORE assets, and redetermine CORE’s per-ton usage fees at any time, in its sole discretion, without shareholder approval. Holders of shares of Class A common stock continue to be entitled to receive dividends when and if declared by the Board of Directors subject to any statutory or contractual restrictions on the payment of dividends and to any prior rights and preferences that may be applicable to outstanding preferred stock, if any.

CORE is not a separate legal entity and holders of Class B common stock do not own a direct interest in the assets of CORE. Holders of Class B common stock are stockholders of Ramaco Resources, Inc. and are subject to all risks and liabilities of the Company as a whole.

With respect to voting rights, holders of Class A common stock and Class B common stock vote together as a single class on all matters submitted to a vote of the stockholders and are entitled to one vote per share. The holders of Class A common stock and Class B common stock do not have cumulative voting rights in the election of directors. Class B common stock does not have any specific voting rights or governance rights with respect to CORE.

With respect to liquidation rights, holders of common stock are entitled to receive ratably the assets available for distribution to the stockholders after payment of liabilities and the liquidation preference of outstanding preferred stock, if any. That is, the rights to residual net assets upon liquidation are equal between holders of Class A and Class B common stock. Holders of Class B common stock do not have specific rights to CORE assets in the event of liquidation.

Shares of Class A common stock have no preemptive or conversion rights and are not subject to further calls or assessment by us. There are no redemption or sinking fund provisions applicable to Class A common stock. The Board of Directors retains the ability, in its sole discretion, to exchange all outstanding shares of Class B common stock into Class A common stock based on an exchange ratio determined by a 20-day trailing volume-weighted average price for each class of stock.

The initial distribution of the tracking stock was recorded as a stock dividend at fair value, which was estimated to be $11.00 per share based on the closing price of Class B shares on the first day of regular-way trading. The effect of the equity restructuring was a $102.9 million reduction in retained earnings and an increase of $102.9 million to Class B common stock and additional paid-in capital during the second quarter of 2023. The Company initially distributed 8,201,956 shares of Class B common shares as well as additional restricted stock, restricted stock units, and performance stock units discussed below.

Stock-Based Compensation Awards

Outstanding stock-based awards were reclassified to Class A common stock as part of the equity restructuring discussed above. In addition, pursuant to the terms of the Company’s outstanding stock-based awards, equitable adjustments were made in accordance with such terms, as discussed below, based on the same factor of 0.2 for every outstanding award. Since there were no changes in fair value, vesting conditions, or award classification, no incremental compensation expense resulted.

Our Long-Term Incentive Plan (“LTIP”) is currently authorized by shareholders for the issuance of awards of up to approximately 10.9 million shares of common stock. As of December 31, 2023, there were approximately 4.6 million shares of common stock available for grant under the LTIP. The one-time distribution of Class B has no bearing on the authorization under the LTIP.

In general, granted but unvested shares are forfeited upon termination of employment, unless an employee enters into another written arrangement. However, exceptions exist for certain executives that are entitled to accelerated vesting if terminated without cause. Granted but unvested shares may not be sold, assigned, transferred, pledged or otherwise encumbered.

As of December 31, 2023, we had four types of stock-based awards outstanding: stock options, restricted stock, restricted stock units, and performance stock units. Stock-based compensation expense for all stock-based awards totaled $12.9 million in 2023, $8.2 million in 2022, and $5.3 million in 2021.

Stock Options—We granted options for the purchase of a total of 937,424 shares of our common stock for $5.34 per share to two executives on August 31, 2016. The options have a ten-year term from the grant date and are fully vested. During the third quarter of 2022, options to purchase 20,000 shares of common stock options with an intrinsic value of $0.124 million were exercised, leaving a balance of options to purchase 917,424 shares of common stock at December 31, 2022. During 2023, stock options of 183,484 shares of Class B awards were distributed to these individuals under the equitable adjustments discussed above. During the fourth quarter of 2023, options to purchase 168,712 shares of Class A common stock were exercised and stock options for 33,742 shares of Class B common stock were exercised having a combined intrinsic value of $2.6 million. The remaining options outstanding and unexercised at December 31, 2023 were 748,712 for Class A common stock and 149,742 for Class B common stock, which were in-the-money at December 31, 2023, having a total intrinsic value of $10.9 million. No compensation expense was recognized for these awards in 2023, 2022, or 2021 as the awards became fully vested in previous years.

The following table summarizes the remaining stock-based awards outstanding, as well as activity for the periods:

	Restricted Stock			Restricted Stock Units			Performance Stock Units
		Weighted			Weighted			Weighted
		Average Grant			Average Grant			Average Grant
For Class A common stock:	Shares	Date Fair Value		Shares	Date Fair Value		Shares	Date Fair Value
Outstanding at December 31, 2021	3,741,770	$	3.98	—	$	—	—	$	—
Granted	214,363		14.59	248,706		15.65	248,706		22.21
Vested	(809,539)		6.57	(82,903)		15.65	—		—
Forfeited	(637)		15.65	—		—	—		—
Outstanding at December 31, 2022	3,145,957	$	4.04	165,803	$	15.65	248,706	$	22.21
Granted	296,115		10.61	518,348		10.61	518,348		18.09
Vested	(1,695,234)		3.37	(82,903)		15.65	—		—
Forfeited	(38,484)		11.90	—		—	—		—
Outstanding at December 31, 2023	1,708,354	$	5.66	601,248	$	11.30	767,054	$	19.43
For Class B common stock:
Initial distribution of Class B awards - June 21, 2023	680,718			136,819			153,404
Vested	(339,035)			(16,578)			—
Outstanding at December 31, 2023	341,683			120,241			153,404

The total fair value of awards vested was $19.7 million during 2023, $11.0 million during 2022, and $5.1 million during 2021.

Restricted Stock—We grant shares of restricted stock to certain senior executives, key employees and directors. These shares vest over approximately one to three and a half years from the date of grant. During the vesting period, the participants have voting rights and may receive dividends. Upon vesting, the restricted stock becomes unrestricted common shares. The fair value of the restricted stock on the date of the grant is amortized ratably over the service period. At December 31, 2023, there was $3.2 million of total unrecognized compensation cost related to unvested restricted stock to be recognized over a weighted-average period of 1.4 years. The fair value of restricted stock awards that vested during 2023 was $14.6 million for Class A awards and $3.6 million for Class B awards. The fair value of the outstanding restricted stock awards was $29.3 million for Class A awards and $4.5 million for Class B awards based on the year-end 2023 closing stock prices.

Restricted Stock Units—We grant shares of restricted stock units to certain senior executives and key employees. These share units vest ratably over approximately three years from the date of grant. During the vesting period, the participants have no voting rights and no dividend rights; however, participants are entitled to receive dividend equivalents, which shall be subject to the same conditions applicable to the units and payable at the time the units vest. Upon vesting and within 30 days thereafter, the recipient will receive one share of common stock for each stock unit.

The grant date fair values of restricted stock units are recognized ratably over the service period. At December 31, 2023, there was $5.2 million of total unrecognized compensation cost related to unvested restricted stock units to be recognized over the weighted average period of 1.7 years. The fair value of restricted stock unit awards that vested during 2023 was $1.3 million for Class A awards and $0.2 million for Class B awards. The fair value of the outstanding restricted stock unit awards was $10.3 million for Class A awards and $1.6 million for Class B awards based on the year-end 2023 closing stock prices.

Performance Stock Units—We grant shares of performance stock units to certain senior executives and key employees. These share units cliff-vest approximately three years from the date of grant based on the achievement of targeted performance levels related to pre-established relative total shareholder return goals. These performance stock units have the potential to be earned from 0% to 200% of target depending on actual results. During the vesting period, the participants have no voting rights and no dividend rights; however, participants are entitled to receive dividend equivalents, which shall be subject to the same conditions applicable to the units and payable at the time the units vest. Upon vesting and within 30 days thereafter, the recipient will receive one share of common stock for each stock unit.

The Company’s performance stock units were valued relative to the stock price performance of a peer group of companies, which was based on a Monte Carlo simulation. The fair value of the performance stock units on the date of the grant is recognized ratably over the service period. At December 31, 2023, there was $8.9 million of total unrecognized compensation cost related to unvested performance stock units to be recognized over the weighted average period of 1.7 years. The combined intrinsic value of the outstanding performance stock units for both classes, at target, was $15.2 million at December 31, 2023. The value of these awards if the performance period had ended on December 31, 2023 is estimated at approximately $27 million.

In addition, performance stock units granted in 2022 were modified during the first quarter of 2023. Modifications to these awards were made up primarily of changes in the composition of the peer group as well as changes in the way relative total shareholder return is evaluated against the updated peer group. The modification resulted in incremental fair value of $1.2 million, which is recognized as expense over 2023 and 2024.

Performance stock units are accounted for as awards with a market condition since vesting depends on total shareholder return relative to a group of peer companies.

Taxes Related to Stock Awards—The Company routinely allows employees to surrender common stock to pay estimated taxes upon the vesting or exercise of stock-based compensation awards. The value of common stock tendered by employees is determined based on the price of the Company’s common stock at the time of relinquishment. There were no other repurchases of common shares.

Dividends

Dividends in the amount of $16.6 million, or approximately $0.375 per share on an aggregated basis ($0.125 per share for three quarterly dividends), were declared and paid to holders of common stock or Class A common stock during 2023. On December 6, 2023, the Company announced that the Board of Directors declared a cash dividend on Class A common stock of $0.1375 per share to be paid on March 15, 2024 to shareholders of record on March 1, 2024. Dividends of $6.0 million were accrued in December 2023 for the cash dividend to be paid in March 2024.

The Company also paid dividends to holders of Class B common stock during 2023 based on 20% of CORE royalty and infrastructure fees. Dividends in the amount of $1.5 million, or approximately $0.165 per share of Class B common stock, were paid on September 15, 2023 to shareholders of record on September 1, 2023. Dividends in the amount of $2.2 million, or $0.249 per share of Class B common stock, were paid on December 15, 2023 to shareholders of record on December 1, 2023. Refer to Note 15 for information regarding dividends declared for holders of Class B common stock subsequent to the date of the financial statements.

For the full year 2023, the Company recognized $27.5 million of cash dividends declared against retained earnings for all classes of common stock, including $6.0 million of dividends declared in December 2023 to be paid in March 2024 and $1.2 million of forfeitable dividends subject to the vesting conditions of outstanding restricted stock units and performance stock units. For the full year 2023, the Company paid $25.8 million of cash dividends for both classes of common stock, including $5.5 million that were accrued at December 31, 2022.

For 2022, the Company recognized $23.1 million of cash dividends declared against retained earnings, or approximately $0.52 per share, including $5.5 million that were unpaid as of December 31, 2022. For the full year 2022, the Company paid $20.0 million of dividends, including $2.5 million that were accrued at December 31, 2021.